1. Annual review2011

2. Thousand year old olive trees at Grupo Santander City, Boadilla del Monte, Madrid, Spain 3. 2 Key figures 4 Letter from the Chairman 8 Letter from the Chief Executive Officer12 Corporate governance16 The share18 Banco Santanders business model19 Commercial focus22 Disciplined use of capital and financial strength23 Prudence in risks24 Geographic diversification26 Model of subsidiaries27 The Santander brand27 Efficiency28 Santanders businesses in 201128 Grupo Santander results30 Continental Europe34 United Kingdom36 Latin America40 United States-Sovereign41 Global businesses44 Sustainability47 Human resources 4. Key figuresBalance sheet and income statementMillion euros 2011 2010 % 2011/2010 2009Total assets 1,251,525 1,217,501 2.81,110,529Customer loans (net) 750,100 724,154 3.6682,551Customer deposits632,533 616,376 2.6506,976Managed customer funds 984,353 985,269(0.1) 900,057Shareholders funds(1)80,62975,273 7.1 70,006Total managed funds1,382,980 1,362,289 1.51,245,420Net interest income 30,82129,224 5.5 26,299Gross income44,26242,049 5.3 39,381Net operating income24,37323.853 2.2 22,960Profit from continuing operations7,881 9,129(13.7)9,427Attributable profit to the Group 5,351 8,181(34.6)8,943Ratios (%)2011 20102009Efficiency (with amortization)44.943.341.7ROE 7.14 11.80 13.90ROTE(2)10.81 18.11 21.05ROA 0.500.760.86RoRWA 1.071.551.74Core capital (BIS II)10.028.808.61Tier 1 11.01 10.02 10,08BIS II ratio 13.56 13.11 14.19Tangible capital/tangible assets(3) 4.4 4.4 4.3Ratio of basic financing(4) 81.279.676.0Loan-to-deposit ratio(5) 117 117 135Non-performing loan (NPL) ratio3.89 3.553.24NPL coverage 617375The share and capitalisation 20112010 % 2011/20102009Number of shares in circulation (million)(6)8,909 8,3297.08,229Share price (euros) 5.870 7.928 (26.0) 11.550Market capitalisation (million euros)50,29066,033 (23.8) 95,043Shareholders funds per share (euros)(1)8.628.588.04Share price/shareholders funds per share (times) 0.680.921.44PER (share price/attributable profit per share) (times) 9.758.4211.05Attributable profit per share (euros)0.60180.9418(36.1)1.0454Diluted attributable profit per share (euros)0.59740.9356(36.1)1.0382Remuneration per share (euros) 0.60000.60000.0 0.6000Total shareholder return (million euros)5,260 4,9995.24,919Other figures 2011 2010 % 2011/2010 2009Number of shareholders 3,293,537 3,202,324 2.83,062,633Number of employees193,349 178,869 8.1169,460Continental Europe63,86654,51817.1 49,870United Kingdom26,29523,64911.2 22,949Latin America 91,88789,526 2.6 85,974Sovereign8,968 8,647 3.78,847Corporate activities 2,333 2,529(7.8) 1,820Number of branches14,75614,082 4.8 13,660Continental Europe 6,608 6,063 9.05,871United Kingdom 1,379 1,416(2.6) 1,322Latin America6,046 5,882 2.85.745Sovereign723 721 0.3722(1) In 2011, scrip dividend for May 2012 estimate.(2) Return on tangible capital.(3) (Capital +Reserves+Minority Interests+Profits-Treasury stock-Dividends-Valuation adjustments-Goodwill-Intangibles)/(Total assets-Goodwill-Intangibles).(4) (Deposits+Medium and long-term wholesale financing+net equity/Total assets (excluding derivatives).(5) Includes retail commercial paper in Spain.(6) In 2011, includes shares issued to meet the exchange of preferential shares in December 2011.2 ANNUAL REVIEW 2011 5. Santander posted an attributable profit of EUR 5,351 millionin 2011 and assigned EUR 3,183 million to provisions,while strengthening its solvency and maintaining shareholderremuneration at EUR 0.60 per share for the third year running.Gross income Net operating incomeMillion eurosMillion euros+ 5.3%2011/2010+ 2.2% 2011/201024,37344,26223,85342,049 22,96039,381 200920102011 2009 20102011Attributable profitTotal dividend payoutMillion eurosMillion euros 34.6% 2011/2010+ 5.2% 2011/20105,2608,9438,1814,999 4,9195,351 200920102011 20092010 2011Efficiency Core capital%BIS II criteria. %+ 1.6 p.p.2011/2010 + 1.22 p.p. DEC 2011/DEC 2010 10.0244.9 43.341.7 8.808.612009 20102011 DEC 09DEC 10 DEC 11 ANNUAL REVIEW 20113 6. Letter from the Chairman Emilio Botn In a very difficult economic, financial and regulatory environment, Banco Santander maintained its policy of giving priority to strengthening its balance sheet as regards capital, liquidity and provisions and generated an attributable profit of EUR 5,351 million, 34.6% less than in 2010. This profit was generated after setting aside EUR 1,812 million of gross provisions, which were not required, to clean up our real estate assets. This increased coverage for repossessed property to 50% and got ahead of the extra provisioning requirements for the financial system approved by the government on February 3, 2012. This provisions, together with writing down part of the goodwill of Banco Santander Portugal, reduced net profits for the year by EUR 1,670 million. Net capital gains in 2011 from the strategic alliance with the insurer Zurich in Latin America and the entry of new partners into the capital of Santander Consumer Finance in the United States amounted to EUR 1,513 million and were used to bolster the balance sheet via other provisions. Net operating income (gross income less operating expenses) was EUR 24,373 million, underscoring the Groups strength and capacity to generate results. We improved the capital base and liquidity and notably reinforced our balance sheet. With a core capital of 9.01%, according to the more demanding criteria of the European Banking Authority, Banco Santander complied with the EBAs Emilio Botnnew capital requirements six months ahead of the deadline. The requirements recently approved by the government and the Bank of Spain to raise coverage of bad property loans in SpainIn the last five years, the total will require EUR 2,300 million of provisions, over and above those made ahead of time against 2011s earnings. These shareholder remuneration paid provisions will be fully charged in 2012. by Banco Santander was EUR 24,000 million 4ANNUAL REVIEW 2011 7. Shareholder remuneration1. Geographic diversification and recurring natureThe Groups sound results will enable, as I said at the lastof revenuesshareholders meeting, the total remuneration per share to be Banco Santander has achieved a geographic positioning in themaintained at EUR 0.60 for the third year running. I would like last few years centred on its 10 core markets, with anto point out that in the last five years, thanks to recurring profits appropriate balance between developed countries (whichand international diversification, Banco Santanders shareholdercontribute 46% of the Groups profits) and emerging marketsremuneration amounted to EUR 24,000 million.(54%).The Santander Dividendo Eleccin (scrip dividend) offers ourThe retail banking model, developed via our 15,000 branches,shareholders the option to receive part of the dividend in cash which provide services to 102 million customers, give usor new shares. Since its launch three years ago, more than 80%recurring growth in commercial revenues in most of theof capital has chosen shares. The board agreed to propose tocountries where we operate.the next shareholders meeting applying this programme for thefourth dividend payment (May 2012). In 2011, we sold Banco Santander Colombia for $ 1,225 million.Our market share in Colombia is far from the 10% we aspire toIn short, Banco Santander demonstrated its capacity to generate have in the markets in which we are present in order to createresults to meet simultaneously the EBAs capital requirements,value for our shareholders. This operation generated EUR 615substantially increase provisions for bad property loans andmillion of net capital gains, which will be recorded in 2012 andmaintain the remuneration at EUR 0.60 per share.assigned to further clean up bad property loans, in accordancewith the new rules.Banco Santanders response tothe challenges of the environment 2. Capital and liquidity management and modelfor subsidiariesIn my view, the Bank faced three big challenges in 2011 andOur overriding priority objective in 2011 was to strengthen thethey will continue to determine the international economic andbalance sheet.financial situation in the coming quarters:In October 2011, the European Banking Authority announced Weak economic activity, particularly in developed countries.the core capital requirements for the main European banks and Very unstable financial markets, especially European sovereignset June 30 2012 as the deadline for meeting them. Indebt markets. December, the EBA said Santander needed a further EUR 15,302million of capital to comply with these requirements. And very significant regulatory measures and changes,particularly higher liquidity and capital requirements for banks. Banco Santander has yet again demonstrated its flexibility andcapacity of execution and, in just two months, we reached theBanco Santander has four management drivers, enabling it, core capital of 9% required by the EBA.from a position of strength, to comply with this new scenarioand continue to gain ground over its competitors: Our goal is to have a core capital of 10%, one percentage pointabove the EBAs requirement and well above the demands ofthe new Basel III regulation and those applicable to systemicallyimportant financial institutions.We maintained a comfortable liquidity position by increasing ourdeposits base without having to remunerate above market rates.Meanwhile, the maturity profile of our debt, concentrated in themedium and long term, enables us not to have to go to thedebt markets in Spain and Portugal. All of this, coupled withweak demand for loans in developed countries, produced animprovement in our liquidity situation. The loan-to-deposit ratioreached 117% at the end of 2011 (135% in 2009). ANNUAL REVIEW 2011 5 8. The Groups international expansion model, via subsidiaries that 4. Model of operational and commercial efficiency are autonomous in capital and liquidity and in many cases listed,Banco Santander is the most efficient international bank among gives us access to markets in an efficient and rapid way and itits competitors, with a cost-to-income (efficiency) ratio of 45% facilitates the funding of aquisitions.compared to the average of 60% of our competitors. The financial autonomy of these units is very well viewed by the The model of operational and commercial efficiency, with the Groups regulator and by local regulators, as it acts as a fire- same technology for the Groups banks, generates cost break, limiting the risk of contagion from any problem between synergies and economies of scale, allows for the exchange of the Groups units. best business practices between countries and enables us tomake significant investments in innovation, development and We were the first international bank to present its living will to security for the benefit of our customers. the regulator thanks to the transparency of our model of autonomous subsidiaries. These four management drivers are strengthened by the strong,solid and attractive Santander brand. Santander is today the 3. Prudent risk management worlds fourth most valuable financial brand according to Brand Banco Santanders traditional policy of prudence in risks hasFinance. enabled the Group to maintain a non-performing loans (NPLs) ratio lower than the sectors average in all countries where we *** do business. Moreover, in the current socio-economic environment,Santander remains firmly committed to sustainability, focusing The evolution of NPLs in Spain was worse than expected for twoon higher education, and also attaches importance to social reasons: on the one hand, the downturn in the economy wasactions and respect for the environment. The Santander more severe than envisaged and, on the other, the fall inUniversities programme continues to grow and already has 990 lending meant the NPL ratio increased to a greater extent thanagreements and has awarded 16,000 travel scholarships. the volume of non-performing loans.Furthermore, in 2011 Banco Santander launched in Spain an Real estate risk in Spain continued to fall and, at the end of ambitious youth employment plan, with 5,000 grants for 2011, represented 4% of the Groups total lending, including internships in small-and medium-sized firms. foreclosed properties.Banco Santander complied with the EBAs new capital requirements six months ahead of the deadline 6ANNUAL REVIEW 2011 9. Net operating income of EUR 24,373 million underscored the Groups strength and capacity to generate results Future prospects: Banco SantandersThe performance of the Santander share in 2011 was not in unique positioning accordance with the Groups level of recurring profits, Some of the factors that have affected the financial sector in soundness and solvency or with the stability of earnings per recent years are likely to persist in 2012. It is therefore vital that share. the European Union approves as soon as possible the decisionsOur share is the most liquid of Eurostoxx and ended 2011 with a needed to quickly restore confidence.dividend yield of more than 10%. The shares low price was In the medium- and long-term, it is likely that, led by European mainly due to external factors, such as the penalisation of the countries, economic growth rates will gradually return towhole banking sector and the pressure exerted on the sovereign normal, which will make the financial markets more stable anddebt of various euro zone countries, which have made it difficult reduce unemployment. to estimate adequately Banco Santanders profit expectations, In this scenario, Banco Santander is in a unique position to I am convinced we will reach all our goals and this will push up create value for its shareholders, continue to register strong the share price significantly. You can rest assured that everyone growth in profits in emerging markets and profitably gainwho works for the Group, from the board to the more than market shares in the most mature markets.190,000 people at the service of our 102 million customers, willdo all they can to make Banco Santander a safe and profitable Banco Santander has no significant acquisition or disposal plans investment for its more than three million shareholders. for the medium term, but it will be on the look out to take advantage of opportunities to strengthen itself in its coreThere were changes in the composition of the board during markets. In an environment of higher cost of capital, the strict 2011. In May, Mr Luis ngel Rojo died and his place was taken criteria the Bank has always used for its acquisitions assumeby the appointment of Mr Vittorio Corbo. Later, Mr Antoine even greater importance: attain in the third year a return on theBernheim (representing Assicurazioni Generali) and Mr Francisco investment greater than the cost of capital and a positive Luzn left the board. At the next shareholders meeting, and if contribution to earnings per share.the boards proposal is approved, Mr Antonio Basagoiti,Mr Antonio Escmez and Mr Luis Alberto Salazar-Simpson will All of this will enable us, as I said last September at the Banks leave the board and Ms Esther Gimnez-Salinas will become Investor Day in London, to boost Santanders ROE to 12%-14%a director. On behalf of the board and on my own behalf I in 2014 and ROTE (return on tangible equity) to 16%-18% from would like to thank the outgoing directors for their work. I am the current 10.81%.sure the contribution to the board of the two new members willbe very positive.Thank you for your support and confidence.Emilio BotnCHAIRMAN ANNUAL REVIEW 2011 7 10. Letter from the Chief Executive Officer Alfredo Senz Results and the Santander share Grupo Santander generated an attributable profit, excluding extraordinaries, of EUR 7,021 million, 14.2% less than in 2010. Including provisions and capital gains, profit was 34.6% lower at EUR 5,351 million. Earnings per share were EUR 0.60, 36.1% less than in 2010. Both our net profit as well as our share price, which dropped 26% in 2011, are at cyclically low levels as they were affected by the worsening of the international environment due to the euro zones sovereign debt crisis. I would like to point out, nevertheless, the good performance of operating profit, which amounted to EUR 24,373 million: net interest income was up 5.5%; net fee income rose 7.6% and net operating income (before provisions) was 2.2% higher. Very few international banks have been able to generate growth in revenue and in net operating income. This reflects the good commercial performance of our businesses, and underlines our strong potential to generate future results. I would like to transmit a clear message: the results we presented in 2011 do not represent our Groups potential pace of profit generation. Over the next two or three years we will recover levels of profitability and growth that reflect the potential of our businesses. A vital first step in this process is to absorb, in 2011 and 2012, the regulatory and economic cycle impact. Once this has been done we can return to the profit levels the Group was used to before the crisis. Alfredo Senz Balance sheet soundness Banco Santander has given priority to balance sheet strengthening over short-term results. In 2011, we put theBanco Santander has given emphasis on three corporate initiatives that enabled us to priority to balance sheet bolster the balance sheet: strengthening over short-term 1. Capital. We achieved the core capital ratio requirement of theEuropean Banking Authority six months ahead of the deadline. results, placing emphasis on 1. The core capital ratio, with Basel II criteria, increased from capital, liquidity and provisions for8.8% in 2010 to 10.0%. real estate assets in Spain2. Liquidity. During the last three years, we have carried out asignificant strengthening of our liquidity position. Leveragingin Spain and Portugal and the improvement in the savingsrate enabled us to gradually reduce the gap between loansand deposits, additional liquidity that will finance debtmaturities in the coming years. 8ANNUAL REVIEW 2011 11. 3. Provisions for real estate assets in Spain. We increased6. Lastly, we have a high level of profit generation before coverage of repossessed properties to 50% and in 2012provisions. This gives us the capacity to absorb provisions we will complete the provisions required by Royal Decree-law when the economic cycle is weak and to generate profits and 2/2012.capital when the cycle improves.We made a significant effort to complete the three measures in Results and management priorities by unitsthe shortest time possible,while most of our competitors are still During 2011, many of our units had to absorb negative impacts:trying to absorb all these cyclical and regulatory effects.a cyclically high level of provisions, in the case of Spain; regulatory effects, as in the UK; and, in other cases, a higherIt is very important for the financial sector to complete this cost of wholesale liquidity and a worse than expected economicprocess of balance sheet strengthening. For this to happen,performance.moreover, two external conditions are vital: However, we are actively managing these effects and are very First, financial stability: governments, regulators and centralaware that, in the coming years, an excellent execution will bebanks have to ensure a macroeconomic environment ofeven more vital.financial stability so that banks can capture liquidity normallyand in reasonable conditions.Banco Santander has the necessary drivers, both in mature and Second, regulatory clarity: banks have to have a clear idea of emerging markets, to return to its normal profit levels.the capital and liquidity ratios required; how they are A. Mature marketscalculated; what types of balance sheet are sustainable and The challenges facing banking units in mature markets are wellother types of costs to be assumed. Only in this way can they known: low demand for loans; economies under pressure; lowmake medium- and long-term business plans and adequate interest rate environments and higher cost of liquidity.financing of the economy can be assured. At the momentmany of the regulatory changes are clearly pro-cyclical andWe believe, however, that the dominant banks in these marketshave a negative effect on economic growth. have a great opportunity to create value in the medium term:Only when these two conditions are met will the financial sector recover attractive profitability; gain market share and becomereturn to its role of financing the economy normally.large generators of capital.Strengths as a Group Spain and PortugalWe must concentrate all our efforts on taking advantage of our In 2011, I told you that we were seeing a turning point in thesebusiness opportunities and ensuring we return to a level ofunits. However, during 2011 the sovereign debt crisis triggeredprofitability and growth that befits our business mix and thea downturn in the Spanish and Portuguese economies, andquality of the organization. further falls in interest rates, which delayed the process of returning to the average profitability of our businesses in theseIn order to achieve this normalization of profits, we are starting countries.from a privileged position. We have strengths as a Group that setus apart from our international competitors: Both the results of the Santander Branch Network and Banesto in Spain as well as those of Portugal, suffered a sharp1. The diversification of our business portfolio is clearly better setback. The aggregate profit of the three units dropped from than the rest of international banks. EUR 1,722 million in 2010 to EUR 964 million in 2011.2. We have a major presence in growth markets. We generate However, our medium-term view has not changed: the crisis is more than 50% of our profits in high growth emergingoffering the most solid banks opportunities to gain market share markets.and improve their competitive position. We have a unique situation to gain en edge in the Spanish and Portuguese markets,3. We have very strong local positions, with market shares of and we are going to exploit it. more than 10%. Many of our competitors have banks without scale in many markets, and this prevents them The management priorities for the next two years remain as attaining an acceptable level of profitability. follows: adapt prices to the new environment; maintain firm4. Our business model is sustainable in the new regulatory control on costs and gain profitable market share from and liquidity environment. Other banks are having to step upcompetitors immersed in processes of integration and the pace of reducing the size of their wholesale balance sheet. restructuring. Our objective in Spain and Portugal is to recover in the medium-term the level of profits we had in 2008.5. Our solvency and credit quality are clearly better than those of our local competitors. ANNUAL REVIEW 20119 12. Rest of Continental Europe/Santander Consumer b. Emerging marketsSantander Consumer posted an attributable profit of EUR 1,228 The growth opportunities in emerging markets are well known.million, 51.5% more than in 2010, largely due to an improvedHowever, not all banks that operate in these markets will becost of the provisions made in the main markets where itable to create value in the medium- and long-term: it isoperates. This result includes the contribution of Santandernecessary to have a good local critical mass; a strong cultureConsumer USA which, as of 2012, leaves the perimeter of and commercial model and an adequate risk appetite, with aSantander Consumer and will be included in the US.good view of the credit. Santander meets all theserequirements.Santander Consumer can continue over the coming years totake advantage of its position of strength in its markets,Brazils attributable profit declined 7.2% to EUR 2,610 million.maintaining good management of prices and risk. Despite the good growth in net operating income (+10.6%),profits were under pressure from higher provisions andMoreover, we have a good opportunity to develop retailwritedowns.banking in Germany, on the basis of the business acquired fromSEB. As you know, we have been betting on growth in Germany Once the integration of Santander and Banco Real is concluded,for many years and today we generate close to EUR 500 million the challenge is to narrow the profitability gap with our localof profits there. Our consumer business operations in the rest of competitors. This should give us a sustained 15% growthContinental Europe are also delivering very good profitability. potential in profits in the coming years.United KingdomIn Mxico, attributable profit was 40.9% higher at EUR 936The profit from our business in the UK was 41.7% lower at EUR million. The management priority for the next few years is to1,145 million. It was hit by the provision for payment protection consolidate the business improvement achieved in 2011 andinsurance remediation (PPI) and by regulatory impacts on thecontinue to participate in the markets growth opportunities.cost of liquidity which exerted pressure on Santander UKsIn my view, our potential in Mexico is very high and we expectresults.profit growth of more than 15% a year.The objective in the UK is to take the necessary measures toIn Chile, attributable profit fell 9.0% to EUR 611 million due toabsorb the regulatory impact. This includes actively managing the increase in provisions. We have a privileged position in thisprices, the structure of the balance sheet and the cost base. market: in market share, customer base and quality ofMoreover, we continue to develop our business with companies, management. We have to be able to adapt our price and costsa segment where we still have a presence below that of ourstructure in order to absorb the new regulatory framework.natural share.In Argentina, attributable profit declined 2.7% to EUR 287For this, we have the business acquired from Royal Bank ofmillion, but in local currency terms it was 8.0% higher.Scotland. We expect the big investment effort in installed capacity(34 new branches in 2011) to enable us to boost the profitUnited States contribution of this unit in the coming years.Sovereigns attributable profit increased 24.0% to EUR 526million, largely due to the sharp fall in provisions. In Poland, the attributable profit from nine months consolidationwith the Group was EUR 232 million, and for the whole yearAfter dedicating three years to strengthening the balance sheet EUR 288 million.and managing costs, our main challenge in the US for the nextfew years is to boost revenue generation and establish theBank Zachodni WBK, our commercial bank in Poland, hastechnology and operational foundations needed to grow in thea long way to go and is already well positioned to capturecountry. The generation of fee income is clearly below that ofgrowth opportunities. Furthermore, we can add value in theour regional competitors and we will have to work to graduallycooperation between this local unit in Poland and the Groupsnarrow this divide. Our technology systems enable us to global units.increase the offer of transactional products and improve cross- The good results in 2011 enable us to reaffirm the goal of aselling to customers. profit contribution to the Group of more than EUR 450 millionin 2013.10 ANNUAL REVIEW 2011 13. Our business units must pay particular attention to successfully carrying out the measures put into effect to improve their profitabilityThe combination of cyclical normalisation and the measures Conclusionstaken by our units will enable us to return to normal profitsI want to leave you with four clear messages:in the coming years. 1. The first is that we have been able to generate excellentIn September, we held our Investor Day in London at which weoperating results, and this is a good reflection of ourpresented our strategy to analysts and investors. The message ofbusiness. However, we are very aware that the net profit inthese sessions was clear, and I want to reiterate it in this letter:2011 does not reflect at all the potential profitability of ouras a Group, our normalised profitability is clearly higher than the businesses in the medium term.current levels. 2. The second is that we are taking the necessary steps toOur goals are:normalise our profitability. We do not base our future by A return on equity of between 12% and 14% within three trusting the economic recovery will make our profits grow. years. On the contrary, we are very conscious that it is up to us todefine and execute the strategies enabling us to attain our A return on tangible equity (excluding goodwill) of betweengoals.16% and 18%. 3. The third message is that, in order to carry out this profitWe believe that these objectives represent our normalised normalisation, we have the best professionals inprofitability, i.e. a return in accordance with the potential of ourinternational commercial banking. We have a high qualitybusinesses, and which is not dragged down by the currentteam which is very motivated and has shown in the past itscyclical moment. In order to attain these levels, we need three capacity to assume ambitious goals and meet or even surpassconditions: them.First, it is vital to complete the threefold strengthening of4. Fourth, the Santander share is currently at a level that doesthe balance sheet: capital, liquidity and provisions for real not reflect the structural profitability or our medium-termestate assets. We will finish this process during 2012. growth potential. As our capacity to normalise our profitsbecomes clear, this will be reflected in the share price.Second, we see some cyclical recovery, mainly in Europe,which we expect to begin in 2013 and consolidate in 2014 and I am very optimistic about the prospects for your investment2015. This means lower needs for specific provisions, reducedin the coming years.liquidity tensions and a rise in interest rates.Lastly, our business units must pay particular attention tosuccessfully carrying out the measures put into effect toimprove their profitability, adapt to the environment and takeadvantage of the opportunities that arise. We believe this willbe the case as we are very aware that, in a complicatedenvironment, execution is the key and we are not going to fail. Alfredo Senz CHIEF EXECUTIVE OFFICER ANNUAL REVIEW 2011 11 14. Corporate governanceGrupo Santander City, Boadilla del Monte, Madrid, SpainThe board of directors Banco Santanders corporateBanco Santanders board of directors is the maximum decision- governance model making body, except for matters reserved for the generalmeeting of shareholders. It is responsible, among other things,for the Groups strategy. Its functioning and activities are Equality of shareholders rights.regulated by the Banks internal rules and principles oftransparency, efficiency and defence of shareholders interests The principle of one share, one vote, one dividend.guide it. The board oversees compliance with the best No anti-takeover measures in the corporate By-laws.international practices in corporate governance and closelyinvolves itself in the Groups risks. In particular, the board, at the Informed participation of shareholders in meetings.proposal of senior management, is the body responsible forestablishing and monitoring the Banks risk appetite.The board has a balanced composition between executive and Maximum transparency, particularlynon-executive directors, all members are recognised for their in remunerations.professional capacity, integrity and independence.There were changes to the board in 2011. Mr Luis ngel Rojo A corporate governance model recognised by Duque, governor of the Bank of Spain between 1992 and 2000, socially responsible investment indices. died on May 24. He joined the board in 2005. In July, Santander has been in the FTSE4Good and DJSI indices Mr Vittorio Corbo Lioi, chairman of the Central Bank of Chile since 2003 and 2000, respectively. between 2003 and 2007, joined the board as a non-executivedirector and in October Assicurazioni Generali S.p.A., also anon-executive director, left the board after reducing its stakein the Bank.12ANNUAL REVIEW 2011 15. Transparency and remuneration policy Transparency for Banco Santander is vital for generating confidence and security among shareholders and investors, even more so at times of financial uncertainty and volatility such as todays. In particular, the remuneration policy for directors and the Banks senior management has transparency as the fundamental principle driven by the board for many years. The other two pillars are: 1. Involvement of the board, as, at the proposal of theappointments and remuneration committee, it approves thereport on the remuneration policy for directors, as well astheir remuneration and contracts and of those of the othersenior members of management and the remunerations ofthe remaining managers of the identified staff. 2. The board submits to the shareholders meeting on aconsultative basis and as a separate item on the agenda thereport on the remuneration policy for directors. 2. Anticipation and adapting to regulatory changes, given theimportance that Santander has always attached to rigorousmanagement of risk and a remuneration policy consistentOn January 23, 2012, Mr Francisco Luzn Lpez resigned as anwith it.executive director and executive vice-president responsible for2. Towers Watson, an independent expert, certificated thatthe America division. Grupo Santanders remuneration policy was in accordanceOn the occasion of the next general shareholders meeting,with the new regulatory framework.and if the boards proposal is accepted, Mr Antonio Basagoiti,Mr Antonio Escmez and Mr Luis Alberto Salazar-Simpson willThe boards remuneration in 2011cease to hold office as directors and Ms Esther Gimnez-Salinas, In 2011, the board agreed to reduce all directors remuneration,rector of the Ramon Llull University, will be appointed as for all items, by 8%.independent director to the board. The amount paid to its members for exercising their functions ofThe board expressed its gratitude for the outstandingsupervision and collegiate decision-making has been reduced bycontribution made by the outgoing directors over the years they6% over 2010. This amount has been unchanged since 2008.had formed part of it, highlighting the important executiveresponsibilities undertaken by several of them throughout theirAs regards executive directors, the board decided to maintain theprofessional careers in the Bank.fixed remuneration for 2012 and reduce by an average of 16% the variable ones for 2011.With these changes, the size of the board is reduced from 20directors at the beginning of 2011 to 16.Full details of director compensation policy in 2011 may be found in the report by the appointments & remuneration committeeThe board in 2011which forms part of Banco Santanders corporate documentation. It held 14 meetings, two of which were dedicated to theGroups global strategy. During 2011, the second vice-chairman and chief executiveofficer presented to the board eight management reports andthe third vice-chairman, responsible for the risk division,presented reports on his area. ANNUAL REVIEW 2011 13 16. Board of directors of Banco SantanderLondon, November 21, 2011General secretary Director Director DirectorDirectorFirst vice-chairmanand of the boardMr ngel JadoMr Luis AlbertoMr Abel Matutes Mr Antonio BasagoitiMr Fernando de Asa lvarezMr Ignacio Benjumea Becerro de BengoaSalazar-Simpson BosJuanGarca-TunCabeza de Vaca Director Director Director Fourth vice-chairman Chairman Mr Juan RodrguezMs Ana Patricia Botn-Sanz Mr Rodrigo Echenique Mr Manuel Soto Mr Emilio Botn-Sanz de Inciarte de Sautuola y OShea Gordillo SerranoSautuola y Garca de los Ros14ANNUAL REVIEW 2011 17. Executive committee Risk committee Audit and compliance committee Appointments and remuneration committee International committee Technology, productivity and quality committeeSecond vice-chairman andDirector Director Director Directorchief executive officer Mr Antonio Escmez Ms Isabel Tocino Lord Terence Burns Mr Vittorio Corbo LioiMr Alfredo Senz Abad Torres Biscarolasaga Third vice-chairman DirectorDirector Director Mr Matas Rodrguez InciarteMr Guillermo de la Dehesa RomeroMr Francisco Luzn Lpez*Mr Javier Botn-Sanzde Sautuola y OShea* Resigned his position on the board January 2012.ANNUAL REVIEW 2011 15 18. The Santander shareGeneral meeting of shareholders, June 17, 2011, Santander, Cantabria, SpainShareholder remunerationBanco Santander assigned EUR 5,260 million to shareholder EUR 5,260 million assigned toremuneration in 2011, 5.2% more than in 2010. The highdegree of recurrence of profits and the soundness of shareholder remuneration.Santanders capital enabled the Bank to pay out more than EUR24,000 million in the last five years. Market capitalization of EUR 50,290As part of this remuneration, Santander has the Dividendo million at the end of 2011.Eleccin programme (scrip dividend), which enablesshareholders to opt to receive an amount equivalent to certain The largest bank in the euro zone by dividends in the form of cash or new Santander shares.The Bank offers flexible remuneration, enabling its shareholders market value.to benefit from tax advantages. Some 80% of the Banks capitalchose to receive shares in 2011. EUR 0.60 remuneration per share in Banco Santander paid against 2011 results: the last three years. A first interim dividend of EUR 0.135 per share (August 2011); 3,3 million shareholders. A scrip dividend of EUR 0.126 per share equivalent to thesecond interim dividend (November 2011); A scrip dividend of EUR 0.119 per share equivalent to thethird interim dividend (February 2012).The board also approved applying the Santander DividendoEleccin programme, with a remuneration of EUR 0.220 pershare, at the date when the final dividend is normally paid(April/May 2012). This would bring the total remunerationper share to EUR 0.60 for the third year running.16ANNUAL REVIEW 2011 19. Investor Day, September 29 and 30, 2011, London, United KingdomComparative performance of the Santander shareDistribution of the capital stock by type of shareholderand indices Number of shares and %Data from December 31 2010 to December 31 2011December 2011SantanderDow Jones Stoxx 50 Base: 100Dow Jones Stoxx BanksIbex 35 Shares(%)120Board198,130,5732.22110Institutional4,687,628,72152.62100Retail 4,023,283,90945.16 90 Total8,909,043,203100.00 80 70605031/12/10 31/12/11Performance of the Santander shareShareholder base and capitalThe Santander share ended 2011 at EUR 5.87, 26% lower thanThe number of Banco Santander shareholders continued toa year earlier. This performance does not reflect the path of rise in 2011. It increased by 91,213 to 3.3 million.results, the soundness of the Banks balance sheet or its futureprospects. The very volatile markets, as a result of the European At the end of the year, 2.2% of the capital stock was in thesovereign debt crisis and doubts on the euro, penalized hands of the board of directors, 45.2% with individualEuropean stock market indices and, in particular, the financial shareholders and rest with institutional investors. Of the totalsector. This situation was also accentuated by doubts on thecapital stock, 87.85% is located in Europe, 11.85% in therecovery in global economic growth and by the new regulatoryAmericas and 0.30% in the rest of the world.requirements for banks.Banco Santander carried out four capital increases in 2011 toSantanders performance, however, was better than that of tend to the Santander Dividendo Eleccin programmes (Februarythe DJ Stoxx Banks (-32.5%), the main European banking index. and November), the conversion of 3,458 bonds (October) andSantander remains in a privileged position as the largest bank in the exchange of preferred shares for ordinary sharesthe euro zone by market value and the 13th on the world,(December). A total of 579,921,105 new shares were issued.with a capitalization of EUR 50,290 million at the end of 2011.In 2011, Banco Santander continued to strengthen itsFurthermore, the Santander share is the most liquid ininformation and attention channels for shareholders in Spain,Eurostoxx.the United Kingdom, the United States, Brazil, Argentina,Mexico, Portugal and Chile. These offices tended to 232,430consultations by telephone, 51,616 e-mails and 19,819shareholders attended 206 forums and events held in variouscountries.On September 29 and 30, 2011 the Investor Day was held inLondon, at which the chairman and the chief executive officer,together with Banco Santanders senior management,presented the Banks strategy for the coming years to more than300 analysts and investors. ANNUAL REVIEW 2011 17 20. The Santander business model Commercial focus Disciplined Efficiencyuse of capital and financial strengthSantanderbrandPrudence in riskGeographic diversificationand model of subsidiaries Banco Santanders business model gives substantialSantander complied with the European Banking recurrence in results.Authoritys core capital requirement of 9% six months ahead of schedule. Retail banking generates 87% of revenues. Santander has 102 million customers who are Santander did not need public funds at any time tended to via 14,756 branches, the largest networkduring the crisis and is one of the worlds most of an international bank. solid and solvent banks. Geographic diversification in 10 core countries In an environment of tensions in financial markets, provides Santander with an appropriate balanceSantanders liquidity position has remained between mature and emerging markets.comfortable. The Banks international expansion was achieved Grupo Santanders non-performing loans ratio is with subsidiaries autonomous in capital and below the sectors average in the main countries liquidity, giving us advantages when financing andwhere it operates. limiting the risk of contagion. Santander was recognized by Brand Finance as the The Groups technology and its control of costs fourth most valuable brand in the world. make Santander one of the worlds most efficient banks.18ANNUAL REVIEW 2011 21. Banco Santander branch in Madrid, SpainCommercial focusTotal Group customersThe customer is the focal point of Banco Santanders activity.(Million)Grupo Santanders customer base has grown notably in the lastSantander Branch Network 9.6few years and more than doubled between 2003 and 2011 Banesto2.4(from 41 million to 102 million). The geographic distribution ofcustomers was as follows: 40.8% in Latin America, 31.3% in Portugal 2.0continental Europe, 26.2% in the UK and 1.7% in the US.Bank Zachodni WBK2.4 Santander Consumer Finance15.5The Banks retail business focus sets it apart from other globalcompetitors, underlined by the fact that 99.8% of the GroupsRest 0.1customers are in the segments of commercial banking andTotal continental Europe32.0consumer finance.United Kingdom26.7Lasting relations and greater value-added with customers are Brazil25.3generated and maintained in branches. Santander has 14,756 Mexico 9.3branches, the largest network of an international bank. In 2011, Chile3.5Grupo Santander increased its distribution capacity with theaddition of 674 branches mainly as a result of the incorporation Argentina2.5of new businesses in Poland and Germany and plans to openUruguay0.2new branches in high growth countries such as Brazil, Mexico Colombia 0.3and Argentina. Puerto Rico0.5In addition to this network, the Bank also has other channels, Peru 0.1available around-the-clock, such as online banking, mobile Rest 0.1telephone banking and telephone banking. In 2011, Santanderstepped up its investment in its call centres in the UK in order toTotal Latin America 41.7improve its customer service. It also launched applications that United States-Sovereign1.7enable it to operate via iPhone and other mobile telephone Total customers102.1means in some of the Groups banks.CustomersBranchesMillionNumber 102.114,75614,082 97.213,660 92.0200920102011 200920102011 ANNUAL REVIEW 2011 19 22. Santander branch in GermanyQuality of service and customer satisfactionThere was also a significant advance in 2011 in implementing theQuality of service is a fundamental part of Banco Santanders corporate model of complaints, which aims to unify the criteriastrategy. applied in managing the customer attention services of theGroups various units.In 2011, customer satisfaction with the services provided by BancoSantander through various channels (branches, telephone and This model revolves around three elements:Internet) improved. Some 88.2% of customers said they were Policies to improve customer attention, confidence andsatisfied, generating greater linkage, proximity and loyalty, as wellsatisfaction.as higher customer revenues. Decision-taking structure based on agile and efficientIn order to improve the quality of service, the Group has a governance systems, with reports made to the first executivecorporate model called META 100, which has been extended to level.more countries year after year. The main objectives of META 100are to reflect the voice of customers and integrate it into the Management of complaints in accordance with the prevailingBanks businesses; establish a culture of quality (i.e. an organisation regulations as well as the good banking practices thatthat is closer to and focused on customers) and generate dynamics regulators require in each country.of continuous improvement, centred on customer satisfaction.Banco Santanders professionals receive continuous training inorder to inform and advise customers transparently and rigorouslyCustomer satisfactionand provide the best service. In the last quarters of 2011,% of individual customers satisfiedprogrammes to foster this culture were put into effect such asEl ao del servicio in Chile, Nuestro estilo in Argentina and Santander Branch Network 88.0Impulsa tu lado Pro in Banco Santander Spain. The corporate Banesto91.2function of Brand Customer Experience was also created, whichPortugal 92.9oversees the consistency and coherence between the promise ofthe brand and the customers experience.United Kingdom 89.1Argentina91.8Santander has an advanced model for managing incidents calledBrazil 83.0MIR, which channels all the disagreements that the customertransmits to the Bank via various channels. Chile90.4Uruguay83.7The objective of MIR is to achieve a quick resolution ofcomplaints. It channels internally its treatment to specialised units Mexico 95.6and keeps the customer informed of the state of the incident. Puerto Rico96.6MIR also identifies the main reasons why customers are not Total88.2satisfied and the causes of the incidents so that steps can be takento correct them. Customer satisfaction by channel % of individual customers satisfiedBranches Telephone Internet 93.7 90.2 89.7 89.188.9 87.520102011 201020112010 201120ANNUAL REVIEW 2011 23. Banco Santander branch in Mexico Banco Santander branch in BrazilProducts and servicesCorporate school of commercial bankingBanco Santander has a wide range of financial products and In order to improve Grupo Santanders commercial bankingservices based on the risk profile of its customers andskills, the corporate school of commercial banking was createdcharacterised, in all its markets, by anticipation and dynamismin 2010.when launching new value offers. Of note among the productsand services launched in 2011 were:This project is supported and involves Banco Santanders senior management: the governing board of the school is headed by In the UK, more than 100,000 123 Cashback credit cards,Mr. Alfredo Senz, the chief executive officer, and compriseswhich return money to customers on the basis of the usage, senior executives responsible for the main countries andwere sold in the first two months after its launch.divisions. In Spain, Santander gave those customers with difficulties as a The schools mission is to gather the best commercial andresult of the crisis the possibility of benefiting from a three- business practices which make up the Groups commercialyear moratorium on the capital repayments of the mortgages banking and promote their transmission in order to drivefor their main home. Almost 6,000 customers took up the business development in the various units. The school alsooffer. enables new countries that integrate into the Group to quickly In Brazil, agreements were signed with major companies, such and efficiently adapt to Banco Santanders commercial bankingas the petrol distributor Shell and the telecoms company Vivomodel.(Telefnica), to launch credit cards with added advantages forthe Banks customers.The school is structured into knowledge areas that respond to the various fields and/or segments of commercial banking. Each In the US, the SMEs area of Sovereign launched the Boost area has someone in charge and consists of expert teams forYour Business programme, designed to attract new customers each of the matters arising from the countries in which theand increase the already existing linkage. This programmeGroup operates. The school capitalises on the best commercialoffers SMEs very attractive interest rates, new financialpractices of countries, in terms of products, services, quality,products and advice shared by specialists. business intelligence, etc, and thereby becomes an extra competitive tool for the Group. The first phase of the school concentrated on individual customers. In 2011, it also began to work on company and SME banking, taking advantage of the experience acquired and incorporated the new countries to its sphere of action (the US, Poland and Germany).Advertising campaigns in Brazil, the UK and Mexico ANNUAL REVIEW 201121 24. Grupo Santander City, Boadilla del Monte, Madrid, SpainDisciplined use of capital Liquidityand financial strength Santander finances most of its loans with customer deposits, maintains comfortable access to wholesale funding and hasCapitalmany instruments and markets to obtain liquidity.Strengthening the balance sheet is a priority objective for BancoSantander, which has quickly and efficiently adapted to the newIn 2011, Banco Santander continued to strengthen its liquiditycapital requirements of international and European banking with an increase of more than EUR 16,000 million in customerauthorities, such as Basel III, regarding globally systemic banks, deposits and debt issues that exceeded the years maturities byand the new requirements of the European Banking Authority more than EUR 8,000 million. All these issues were carried out(EBA). without the states guarantee.Banco Santander carried out various measures regarding capital Active management of the business portfolioin the last months of 2011, allowing it to achieve a core capitalSantander made some selective sales in 2011 and obtainedratio of 9% six months ahead of the EBAs deadline of June 30, EUR 1,513 million of capital gains:2012. The strategic alliance with the insurer Zurich to developAccording to the EBA, Banco Santanders additional capital business in Latin America which generated EUR 641 millionneeds amounted to EUR 15,302 million. This amount has been of capital gains.reached as follows: The entry of new partners into the capital of Santander EUR 6,829 million of Valores Santander, which have to be Consumer USA. This operation valued the bank at $4,000converted into shares before October 2012. million and meant EUR 872 million of capital gains. EUR 1,943 million through the exchange of preferred shares Santander also reached an agreement to sell the Groupsfor ordinary new shares. businesses in Colombia for $1,225 million (net gain of EUR 1,660 million through the application of the Santander EUR 615 million to be recorded in 2012).Dividendo Eleccin programme (scrip dividend) at the timeof the final dividend corresponding to fiscal year 2011. EUR 4,890 million through organic capital generation andthe transfer of certain stakes, mainly in Chile and Brazil. Core capitalLoan-to-deposit ratio(*)Regarding the latter, Santander reached in December 2011 BIS II. criteria. % %an agreement (implemented during the first week of 2012) totransfer 4.41% of Santander Brazil to a major international 13510.02financial institution which will deliver such shares to holders ofconvertible bonds issued in October, 2010, by Banco Santander, 117 117when these mature, pursuant to the terms of said convertible8.80bonds.8.61Santander is one of the worlds most solid and well-capitalisedbanks, and at no time has had to recourse to public funds,as a result of which it is one of the international banks with thebest rating. 200920102011 20092010 2011(*) Includes retail commercial paper in Spain.22ANNUAL REVIEW 2011 25. Grupo Santanders new data-processing centre in Cantabria, SpainPrudence in risk These additional needs will be entirely met in 2012 as follows:Prudent risk management has been a hallmark of Banco EUR 1,800 million already charged against the Groups fourthSantander since it was founded more than 150 years ago. quarter 2011 results, which lifted coverage of repossessedEveryone is involved in risk management, from the daily properties to 50% from 31%.transactions in branches, where business managers also haverisk objectives, to senior management and the board, whose risk EUR 2,000 million are a capital buffer required by the rulescommittee comprises five directors and meets for some 300and which are covered by capital already held by the Group.hours a year. The remaining EUR 2,300 million will be covered through capital gains which may be obtained during the year Of note among the corporate risk management principles is that including EUR 900 million from the capital gain on the sale ofthe risk function is independent of business. The head of theBanco Santander Colombia and through ordinaryGroups Risk Division, Matas Rodrguez Inciarte, third vice-contributions to provisions during 2012.chairman and chairman of the risk committee, reports directly tothe executive committee and to the board.Santanders exposure to the real estate promotion sector represented 14% of its total lending in Spain at the end of 2011A low and predictable risk profile and only 4% of the Groups total loans, including repossessedThe board sets the Banks risk appetite at a medium-low level. homes. Santanders market share of this business is estimatedSome 86% of Grupo Santanders risk comes from retail banking.at 10%, well below that of the Groups total business in SpainProximity to the customer enables us to act rigorously and with(14%).anticipation when admitting, monitoring and recovering loans.Santander has units dedicated to recovering unpaid loans,Moreover, Santander assigned EUR 1,513 million of capital gainswhich, under a corporate model, are integrated as one more obtained in 2011 to strengthening the balance sheet.business areas in the Groups various countries and divisions.***Santanders risk profiles are highly diversified and their Banco Santanders risk management principles are treated in more detail in the annual report.concentration in customers, business groups, sectors, productsand countries is subject to limits.The Group has the most advanced risk management models,such as use of tools for calculating ratings and internal scoring,economic capital, price-setting systems via return on risk-adjusted capital (RoRAC), use of value at risk (VaR) in marketrisk, and stress testing.Non-performing loan ratioCoverage ratioRisk quality%%The Groups non-performing loan ratio increased to 3.89% in2011, but remains below the average on all the countries where3.897573it operates. In Spain, the NPL ratio was 5.49%, also well below613.55the sectors average.3.24After approval of Royal Decree Law 2/2012, which sets newrequirements for cleaning up bad property loans in Spain,the Bank announced that the amount of provisions GrupoSantander in Spain needs to meet these requirements isEUR 6,100 million. 200920102011200920102011 ANNUAL REVIEW 2011 23 26. Geographic diversificationGrupo Santander has a geographic diversification balancedbetween mature and emerging markets (46% and 54% ofprofits, respectively, in 2011).The Bank concentrates on 10 core markets: Spain, Germany,Poland, Portugal, the UK, Brazil, Mexico, Chile, Argentina andthe US. The global areas also develop products that aredistributed in the Groups commercial networks and tend toglobal sphere clients. Contribution to the Groups attributable profit %United States 12% Mexico 10% Brazil 28% Chile 7%Argentina 3%Rest of Latin America 3%24ANNUAL REVIEW 2011 27. Main countries. Other countries where Banco Santander has retail banking businesses: Peru, Puerto Rico, Uruguay, Colombia, Norway, Sweden, Finland, Denmark, Netherlands, Belgium, Austria, Switzerland and Italy.United Kingdom 12% Poland Germany3% 5% Spain 13%Portugal 2%Rest of Europe 2%ANNUAL REVIEW 2011 25 28. Banco Santander branch in Sao Paulo, BrazilModel of subsidiaries They guarantee a high level of transparency and corporateGrupo Santanders international expansion was carried out via governance and reinforce the brand in various countries.subsidiaries that are independent and autonomous in capitaland liquidity:Banco Santander combines the financial flexibility of itssubsidiaries with their operations as an integrated group that Capital: the local units have the capital required to develop creates high synergies. The corporate systems and policies thattheir activity autonomously and meet regulatory requirements. Banco Santander implements in all the Groups institutions Liquidity: each subsidiary develops their financial plans,enable the following:liquidity projections and calculates their finance needs, Synergies in costs and revenues, by developing with globalwithout counting on funds or guarantees from the parent strategies the Santander retail banking model and sharing thebank. The Groups liquidity position is coordinated by thebest practices among countries and units.ALCO committees (assets and liabilities). Strengthen the Santander culture, with particular importanceThe model of subsidiaries autonomous in capital and liquidity,attached to managing risks at the global level and controllingwith some of them listed, such as Santander Brazil, Santander the business units.Chile and Banesto, has strategic and regulatory advantages: Greater efficiency in investment by sharing systems globally. The autonomy of the subsidiaries limits, during a crisis, thepossibilities of contagion between the various Group units, All of this enables the Group to obtain better results than eachthereby reducing systemic risk. local bank would have achieved on its own. The subsidiaries are submitted to a double level of supervision(local and global) and internal control. This model facilitates management of and resolving the crisiswhile generating incentives for good local management. The listed subsidiaries allow for access to capital efficientlyand quickly, always choosing the best alternative forshareholders, and they are subject to the markets discipline. The shares of the subsidiaries are an attractive bargaining chipfor acquisitions in the local market and an alternative toinvesting the Groups capital. They give visibility in the Groups valuation to various businessunits.Banco Santander branch in Madrid, Spain Banco Santander branch in London, United Kingdom26 29. The Santander brand EfficiencyThe Santander brand transmits the Banks corporate values Santanders IT and operations platform enables it to be veryto customers, shareholders, employees and society in general. productive and know in detail and with an integral viewThese values are: dynamism, strength, innovation, leadership, customers financial needs. The Bank is also making acommercial focus and quality service, professional ethics and continuous effort to improve its processes, direct customersustainability. attention and its business support areas in order to provide thebest service.Santander has a significant presence in the brand rankings ofthe main consultancy firms, such as Interbrand, Millward BrownSantander continues to advance in implementing its corporateand Brand Finance. In 2011, the brand continued to consolidatetechnology platforms in all its business units, which is creatingitself in the Groups key markets, boosting its renown in Brazil, value through revenue synergies and cost savings. In 2011,the UK and Germany. In the US and Poland, the transitionintegration of Santanders IT platforms and those of Real intoward the Santander brand continued to make progress.Brazil were consolidated. The branches acquired from theMeanwhile, Santander continues to unify its identity in globalSwedish group SEB in Germany and from Bank Zachodni WBKsegments, such as Select for personal banking, in order to alignin Poland were integrated into the Group.the positioning in these markets with the Groups values.A new data-processing centre began to operate in 2011 inBanco Santander has an international advertising strategy, whichCantabria, Spain, which joins the Groups network of suchhelps to strengthen and consolidate the Banks internationalcentres that provide service from Madrid-Boadilla del Montepositioning and supports business. In 2011, when banking was(Spain), London (UK), Quertaro (Mexico) and Sao Paulo (Brazil).particularly hard hit, the Banks corporate message was focused The new centre boost the capacity for processing the Groupson solvency and the geographically diversified business model,operations, guarantees business growth in the future andwithout forgetting our positioning of proximity, confidence and reduces to a minimum the operational risk with customers.commitment to the customer.The Banks recurring growth in revenues, the culture ofCorporate sponsorships have proved to be a key platform for controlling costs and the high degree of productivity ofincreasing Santanders renown, consolidate the Banks branches makes Santander one of the worlds most efficientinternational positioning and support business. banks, with a cost-to-income ratio of 44.9%. In 2011, Santander sponsored for the second year runningThe continuous improvements in efficiency are leading tothe Formula 1 Ferrari team, an excellent business tool, asgreater value-added for customers. The Bank, in some of itsunderlined by more than 370,000 Santander-Ferrari creditcore markets, decided to eliminate commissions for its linkedcards sold throughout the world. Santander continues tocustomers: in Spain, with the We want to be your Bank plan insponsor the McLaren team, the main advertising tool in thethe Santander Branch Network and in the UK wih the SantanderUK.Zero Current Account. In Latin America, Santander continued to work to be thefootball bank, sponsoring the Santander Libertadores Cup, the2011 Americas Cup in Argentina, the South American Cupand the agreement in Brazil with the football player Neymar.In 2012, and via the strategic committee of corporate marketingand brand, chaired by the CEO, the Bank will continue to fosterbrand unification in all countries, bolstering its globalpositioning, maximizing corporate sponsorships and working tocreate a good brand experience for all customers. ANNUAL REVIEW 2011 27 30. Santanders businesses in 2011Grupo Santander results Grupo Santander conducted its business in 2011 against abackdrop of slower growth in the global economy, continuoustensions in the European sovereign debt markets and in theSantander posted an attributable profit ofworlds main stock markets and increasing regulatory pressure.EUR 5,351 million in 2011, 34.6% less thanGeographic diversification, with the growing importance ofin 2010, after setting aside EUR 3,183emerging countries, Banco Santanders retail banking modeland the incorporation of new businesses pushed up grossmillion for provisions. income to EUR 44,262 million, a new record.Operating expenses grew 9.3% as a result of the integration of Of note was the EUR 1,812 million gross provisionnew businesses and investment in technology. However, the for real estate assets in Spain.performance varied between countries such as Spain and The recurring profit was EUR 7,021 million Portugal, where they fell; mature countries where the Bank is (-14.2%).strengthening its commercial franchise (Germany, the UK and Profit before provisions was EUR 24,373 million, the US), and emerging countries, where the Group continues toinvest in increasing commercial capacities. The cost-to-income one of the largest among international banks.(efficiency) ratio was 44.9%, making Santander one of the Santander reached the core capital ratio of 9% set worlds most efficient international banks. by the EBA six months ahead of the deadline.Profit before provisions was EUR 24,373 million, underscoring The loan-to-deposit ratio was 117%,18 p.p. lower Grupo Santanders capacity to generate results. Banco than in 2009.Santanders attributable profit in 2011 was EUR 5,351 million. The Bank aims to increase its ROE to 12-14% in It would have been EUR 7,021 million (-14,2%) but for the 2014 and its ROTE to 16-18%. fourth quarter EUR 1,812 million gross provision for real estateassets in Spain (which raised coverage of repossessed propertiesfrom 31% to 50%), as well as amortisation of EUR 601 milliongross of goodwill of Santander Totta in Portugal. The Bank alsoassigned EUR 1,513 million net of capital gains to otherprovisions.28ANNUAL REVIEW 2011 31. Santander branch in London, United KingdomCommercial activity and balance sheet strength Medium- and long-term objectivesFrom the business standpoint, the main strategy is still toIn September 2011, Grupo Santander held a meeting in Londoncapture and link more and better customers and offer them afor more than 300 investors and analysts. Senior managementgood service, and improve the structure of funding loans withexplained in detail at this Investor Day the Groups strategy andmore stable deposits (+3% in 2011). The growth in lendingobjectives for the medium- and long-term, as well as for the(+3%) varied between mature countries, where demand by various business units.households and companies was weak, and emerging countries,where the increase was notable.Under a scenario for 2012 of continued weak growth in the global economy and assuming as of 2013 a normalization of theThis evolution of loans and deposits enabled the Group toeconomic environment, Santander expects to lift its return onimprove its liquidity position. The loan-to-deposit ratio wasequity (ROE) from 7.1% (9.4% taking into account the recurring117%, 18 p.p. lower than in 2009. Moreover, the Groupprofit) to 12%-14% in 2014 and its return on tangible equitymaintained during 2011 its capacity of recourse to the markets from 10.8% (14.2% bearing in mind the recurring profit) tofor funding, underlined by the fact that the years total issues 16%-18%, through:exceeded maturities by EUR 8,000 million. A gradual normalization of profits in mature markets,Grupo Santanders core capital ratio at the start of 2012 wasincluding lower needs for provisions.9% (according to the EBAs criteria). The 9% ratio, required by Organic growth in emerging markets.the European Banking Authority for Europes main banks, wasreached six months ahead of the June 30, 2012 deadline. Better optimization of costs and revenues. ANNUAL REVIEW 2011 29 32. Continental Europe Spain-Santander Branch Network In 2011, the Santander Branch Network contributed EUR Continental Europes attributable profit660 million to the Groups profits, 22.1% less than in 2010. was 15.1% lower at EUR 2,849 million. The environment in which business was conducted in Spain was characterized by weak GDP growth, higher unemployment, Santander has a large network ofrestructuring in the financial sector and tough competition for branches in Continental Europe (6,608), deposits. In this scenario, the networks priorities were to which tend to 32 million customers. Itactively manage customer spreads, strengthen the balance sheet through capturing deposits, credit risk quality, austerity in carries out retail banking business incosts and capturing, linking and retaining customers. Spain, Portugal, Germany and Poland, and consumer finance in 13 countries. Gross income grew 2.4%, consolidating the change seen at the end of 2010. Operating expenses were 1.2% lower and the The Group also has wholesale banking, number of branches remained virtually the same. The efficiency asset management and insuranceratio improved to 46.5%. businesses. The worsening of the economic environment continued to exert upward pressure on the Groups non-performing loan ratio in Spain The commercial strategy is centred on (to 5.49%), although it was still below the sectors average. capturing funds in an environment of weak Exposure to the real estate sector continued to decline and at the demand for loans. Basic revenues (net interestend of 2011 represented only 4% of the Groups total lending, income, fee income and insurance) grewincluding repossessed properties. 8.4%. Commercial and customer strategy In Spain, the change of trend in revenues was The Santander Branch Network serves 9.6 million customers, of consolidated. which almost 8.2 million are individuals, mainly salaried workers, the young and pensioners, more than 260,000 are private and In Portugal, Santander Totta is the most personal banking customers and 1.1 million are companies, solvent bank and has the countrys best rating. SMEs, businesses and institutions. In Poland, Bank Zachodni WBK, with 526 branches and 2.4 million customers, was incorporated to the Group. Santander Consumer Finance notched up record revenues and profits. Santander was named by the prestigious magazine The Banker the best bank in Western Europe, Spain and Portugal in 2011. Attributable profitNet operating income Million eurosMillion euros - 22.1%2011/2010+ 5.7% 2011/2010 847 2,3532,227660 201020112010 201130ANNUAL REVIEW 2011 33. Santander branch in Madrid, SpainBanesto branch in Madrid, SpainSince 2006, Queremos ser tu Banco (We want to be your Bank)Spain-Banestohas been the strategic plan for capturing new customers andBanesto contributed attributable profit of EUR 130 millionestablishing stable and lasting relations with them. The 3.8 to the Group, 68.9% less than in 2010.million customers in this plan benefit from not having to payservice commissions, which makes them more satisfied and This bank focuses on individual customers, SMEs and companies,increases the linkage and, thus, more profitable for the Bank. which, overall, provide 90% of its revenues.Santander also has a commercial intelligence, backed by itsDespite the complex domestic environment in 2011, Banestovanguard technology and with an innovative multichannelimproved its competitive position in terms of profitability,strategy in products and services. efficiency and quality of risk and increased its customer baseIn 2011, 227,000 loans were granted for a total of EUR 25,000and linkage, as well as enhancing the quality of service in itsmillion. Yet again Santander was the sectors leader inbranch network:intermediating the ICO finance lines (market share of around 193,000 new customers were captured and 72,00020%).companies, SMEs, commerce and the self-employed. More than 50% of customers have their pay cheque paid intoSantander has been very active in capturing customer funds, their account.reducing at the same time the cost of deposits by takingadvantage of its position as a solvent and solid bank. In the last The efficiency ratio was 47.4%.two years, Santander has increased its market share of deposits Real estate risk was reduced, and only represents 6.1%by more than a percentage point. of total lending.In order to support customers with temporary problems due to The non-performing loan ratio was 5.01%, one ofthe economic crisis in Spain, the Santander Branch Network the sectors lowest.offered, as of August 1, a three-year moratorium on repayingthe capital of mortgages for the main residence. At the end ofMedium- and long-term objectives2011, close to 6,000 customers benefited from this offer for a Banesto will continue to strengthen its competitive position intotal of almost EUR 1,000 million. order to:Medium- and long-term objectives Achieve an efficiency ratio below 40% in 2013, with revenue growth supported by management of prices and strict control Sustained growth in revenues and improvement in the of costs.efficiency ratio to 39%-41%. Improve the loan-to-deposit ratio. Boost deposits by 5%. Maintain risk quality above the sectors average. Consolidate the customer base and increase transactionallinkage. Strengthen leadership in high-income segments and fostermultichannel business. ANNUAL REVIEW 201131 34. Continental EuropePortugalPolandSantander Totta contributed an attributable profit of EUR Bank Zachodni WBK posted an attributable profit of EUR174 million, 61.8% less than in 2010. 232 million in the last three quarters of 2011.The Banks gross income declined 18.3% due to the reduction inSantander conducts its retail banking business in Poland throughnet interest income, caused by the increase in funding costsBank Zachodni WBK, which has the countrys third largestfrom greater competition in capturing deposits, and the drop in distribution network (622 branches, including 96 agencies),business. Operating expenses fell 2.1%. Santander Tottas non-2.4 million customers and more than EUR 20,000 million ofperforming loan ratio (4.06%) was below the sectors average. loans and deposits. Grupo Santander also carries out consumerProvisions rose 87.7%, due to prudent management in anfinance business through Santander Consumer Bank Poland.unfavourable environment.Bank Zachodni WBK has been part of Grupo Santander sinceFollowing Portugals financial rescue, the authorities askedApril 1, 2011, consolidating the results and businessPortuguese banks to implement various adjustment measures tocorresponding to the last three quarters of the year. In anreduce their leverage, increase their capital and reduce recourse environment of strong economic growth and banking business,to the European Central Bank (ECB). Santander Totta isat rates of close to 10%, its profits grew at an annual rate 22%,progressing in this process:thanks to robust revenues. The focus on capturing deposits (+8% to EUR 23,465 million),Bank Zachodni WBKs net lending to customers amounted tocoupled with the fall in lending (-6% to EUR 28,403 million) is EUR 8,479 million and deposits to EUR 10,359 million. Loansreducing the commercial gap.and deposits rose 14% in the first nine months under Santandermanagement, due to growth with companies as well as Santander Totta increased its core capital ratio to 11.2% andindividuals. The efficiency ratio was 47.0% and the non-remained the most solvent bank in the country and with theperforming loan ratio 4.89%.best rating. The level of exposure to the ECB was also reduced (to 3.8%Bank Zachodni WBKs business model fits perfectly into Grupoof assets at the end of 2011).Santanders commercial banking model: focus on retail customerand company, supplemented by a notable presence in assetThe magazines The Banker, Euromoney and Global Financemanagement business and brokerage of securities and leasing.chose Santander Totta as the best bank in Portugal. This bank offers a significant potential in results in the comingyears, both through business as well as from the synergies from its Medium- and long-term objectives integration into the Groups IT platform. Improve the revenue structure with greater recurrence. Medium- and long-term objectives Reach an efficiency ratio of below 50% in 2013. Double-digit growth in gross income. Continue to reduce the commercial gap in line with the Bankof Portugals requirement (43% of this amount already Efficiency ratio of between 41% and 43%.attained). Gain market share. Consolidation as one of Polands three main banks in terms ofprofits, efficiency, solvency and customer service.Santander Totta branch in Lisbon, PortugalBank Zachodni WBK branch in Poland32INFORME REPORT 2011ANNUAL ANUAL 35. Santander Consumer Finance Germany, the United States and other countriesSantander Consumer Finance generated a recordSantander has 303 branches in Germany, EUR 30,403 million ofattributable profit of EUR 1,228 million, 51.5% more thanloans, EUR 31,174 million of deposits and more than 7 millionin 2010. customers. Santander is the market leader in consumer finance and the second in auto finance in Germany. Since January 2011,Santander carries out its consumer finance business in 13it has a retail banking unit. Its profit increased 10.0% in 2011,European countries, notably Germany, and also in the US. The with significant growth in loans and an improvement in credit risk.business model is based on offering financial solutions throughmore than 135,000 distributors (auto concessionaires and Santander Consumer USAs profit surged 99.2% in dollars toshops). Once a relation is started with a customer, direct EUR 484 million, spurred by the increase in managed creditcommercial actions are taken to link them and make them loyal. volumes, the rise in revenues from managing third party portfoliosWith a business centred on auto finance, Santander Consumerand a lower cost of credit. The entry of new partners into theFinance has signed 37 agreements with nine car producers incapital was announced in September, which valued the unitthe last three years. SCF also has other products such asat $4,000 million.personal loans, credit for buying consumer durables and creditcards. The rest of countries also produced positive results, particularly: Nordic countries (+14.5% in profits in local currency).Results and activity in 2011In a globally unfavourable economic environment, gross lending UK (+38.1% in sterling)stood at EUR 62,959 million, 16% (*) more than in 2010, thanks Spain, with a positive result in a very weak market.to organic growth and the incorporation in Germany. Deposits Santander Consumer Bank Poland almost doubled its profits.rose 28% to EUR 33,198 million (Germany accounted for 94%).Gross income increased 14.0% (+13.6% net interest income and Medium- and long-term objectives+18.0% net fee income). Maintain high profitability.Santander Consumer Finance has the best efficiency ratio Consolidate the Top 3 position in key markets.(31.8%) and return on assets compared to its main competitors. Strengthen leadership in the reference financial entity modelThe non-performing loan ratio continued to decline to 3.77%. for car producers.(*) Isolating Santander Consumer USA which consolidated by the equity accounted method in Maintain leadership in efficiency and reinforce specializationDecember 2011. in payments and recoveries. Lending by countriesLending by segments % %Germany 48% Cars new 25% Creditcards Netherlands 2%2%Austria 2%Cars- second hand 22% Stock Finance 5%Portugal 2%UK 6%Other 7%Spain 12%Poland 5%Electrical householdappliances 5% Direct businesses 17% Nordic countries 11% Italy 12% Mortgages 17% Santander B. ZachodniSantanderTotal Continental Europe Branch NetworkBanesto PortugalWBK Consumer Finance RestCustomers (million) 9.6 2.42.02.4 15.5 0.1 32.0Branches (number)2,915 1,714 716526 647906,608Employees (number) 18,7049,5486,091 9,383 15,610 4,53063,866Customer loans on the balance sheet(*) 102,643 68,85028,403 8,479 60,27646,429 315,081Managed customer funds(*)107,469 82,44431,18812,383 39,00861,571 334,064( )Net operating income * 2,353 1,112 4433663,604 857 8,735Attributable profit(*) 660 130 1742321,228 424 2,849Efficiency (%)46.5 47.454.447.0 31.854.6 43.1(*) Million euros ANNUAL REVIEW 2011REPORT33 36. United KingdomResultsSantander UK carried out is activity in 2011 in an environment Santander UKs attributable profit was of low economic growth, interest rates at minimums and EUR 1,145 million. substantial regulatory uncertainty.Profit was EUR 1,145 million, after constituting a 538 million The Bank has 1,379 branches, which fund for possible payment protection insurance remediation tend to 27 million customers, and is the (PPI). This measure was also taken by the other main UK banks, third largest bank in the UK by retail although in the case of Santander UK the amount was relativelyless than that announced by its competitors. deposits and mortgages.Gross income was EUR 5,678 million, pressured downward bymarket circumstances such as the new regulations for liquidity The Bank has a comfortable position in and the increased cost of funding, as well as low interest rates. liquidity and high levels of capitalization.Net operating income after provisions was EUR 2,538 million, It granted one out of every six mortgages8.4% less than in 2010 in local currency. in the UK and increased its market share in lending to SMEs by a full percentage point.Loan-loss provisions were 36.3% lower than in 2010. The non- It is committed to quality of service: itperforming loan ratio (1.86%) evolved better than expected inthe current economic environment and all products for repatriated its call centres to the UK andindividuals, particularly mortgages and personal loans, created 1,100 jobs to improve customerimproved. attention. Santander UK was recognized by The BankerSantander UK has a comfortable liquidity position and high magazine as the best bank in the UK for thelevels of capitalisation. The loan-to-deposit ratio was 130% third year running.at the end of 2011. Its goal is to become the most efficient and profitable bank in the UK in 2014.United KingdomCustomers (million) 26.7Branches (number)1,379Employees (number)26,295Customer loans(*)252,154Managed customer funds(*)288,826Net operating income(*)3,123Attributable profit(*) 1,145Efficiency (%)45.0( ) Million euros *34 ANNUAL REVIEW 2011 37. Santander branch in London, United KingdomCommercial activity StrategyDespite the difficult environment, Santander UK continued toSantander UKs strategy is aimed at transforming the bank into asupport business with households and companies. The Bankmore diversified financial franchise, capable of providing all kindsgranted one out of every six mortgages in 2011, which of services and focused on the customer, via:represented a market share in new lending higher than Boosting customer linkage, moving from a model centred onSantander UKs total mortgage share (14%). The customerproducts to one focused on the customer.spread improved, while these new loans had a very conservativeloan-to-value of only 65%. Strengthen business with companies. The integration of the318 branches acquired from Royal Bank of Scotland will raiseNew loans to SMEs grew 25% to more than 2,000 million andby five percentage points the market share of companysurpassed the targets set by the UK government. The marketbusiness.share in this segment rose by almost one percentage point to4.3%. At the end of the year, Santander UK launched Maintain high operational efficiency and improve the qualityBreakthrough, a new initiative for further promoting loans to of service. Santander UK will invest 490 million in its ITSMEs and which makes available to this type of customer a platform.programme of full support, with training, tutorials, internationalexperience and practices. Medium- and long-term objectivesSantander UK wants to be the most efficient and profitableDuring 2011 836,000 current accounts were opened as a bank in the UK in 2014 with:result of the focus on capturing and linking new and existingcustomers. Within this strategy, more than 100,000 123 An efficiency ratio of below 44%.Cashback credit cards, which return money to customers on Revenue growth of between 15% and 20% a year inthe basis of usage, were sold in the first two months after company banking.the launch. The systems lowest non-performing loan ratio.In July 2011, Santander UK repatriated its call centres to the UKfrom India. As a result, 1,100 jobs were created and the buildingof a new corporate centre in Leicester was announced, all of it inorder to enhance customer service. Attributable profit Net operating income Million euros Million euros- 41.7%(*)2011/2010 - 16.4%(*)2011/20101,965 3,735 1,1453,123 2010 2011(1) 2010 2011(1) Affected by the provision in the second quarter of 2011 for possible payment protection insurance (*) Excluding the exchange-rate impact: -15.4%remediation (PPI).( ) Excluding the exchange-rate impact: -41.0%*ANNUAL REVIEW 2011 35 38. Latin America Brazil The attributable profit of EUR 2,610 million accounted for Latin America contributed 51% of the28% of the global total. Brazil is a strategic market for the Groups profits and is one of Santanders Group. main growth commitments. The Group Santander Brazil is the countrys third largest private sector has leadership positions in the mostbank in terms of assets, with 3,775 branches and points of dynamic and solid economies such as attention, 18,419 ATMs and 25.3 million customers. In Brazil, Mexico, Chile and Argentina,2011, technology integration and brand unification was completed with Banco Real. through 6,046 branches, which serve 42 million customers. The Brazilian economy, the worlds sixth largest, continued to provide a favourable environment for the Groups business. GDP grew around 3% and growth of 3-4% is expected to be Latin Americas profit of EUR 4,664 million was maintained in the next few years. 0.1% higher than in 2010 in constant currency. The country has big investment and infrastructure plans, partly The Groups lending continued to grow due to holding the 2014 World Football Cup and the 2016 (+18%). Olympic Games. Santander Brazil posted an attributable profit In this scenario, the financial sector grew strongly (+18% in of EUR 2,610 million. loans) and is expected to continue to do so on a sustained basis Santander Mexico increased its profit 45.6% inin the coming years, thanks to the rise in the size of the middle pesos, spurred by strong lending and deposits.class and in the countrys bankarisation levels. The magazine The Banker recognized Santander Chile as the bank of the year and the safest one in Latin America by Global Finance. Argentinas attributable profit was 8.0% higher in local currency (+24.7% in gross income). Santander branch in Brazil36ANNUAL REVIEW 2011 39. Banco Santander branch in BrazilActivity and results StrategySantander Brazils attributable profit of EUR 2,610 million wasTechnology integration and brand unification with Banco Real7.3% lower in local currency. Gross income rose 11.2% andwas completed successfully in 2011 and now, with an optimumoperating expenses 12.3%, due to investments in the new IT commercial banking platform and a wider range of productsplatform and the opening of 154 branches in 2011, coupledand services, Santander Brazil is best placed to carry out itswith inflationary pressure and wage agreements. Net operatingbusiness.income increased 10.6%. Provisions were 21.4% higher due tothe moderate rise in the non-performing loan ratio (5.38%).The Banks structure in Brazil is difficult for its international competitors to replicate as it has latest generation technology,Lending grew 20%, spurred by the 23% rise to individualdistribution networks with sufficient capacity to guaranteecustomers and the 26% growth to SMEs and companies.attention throughout the country and a good brand positioning.Bank savings, including financial letters, increased 8% (+30% Its strategy is based on the following pillars:time deposits). Santander Brazil has a 10.5% market share inloans (11.7% for unrestricted credit) and 7.9% in deposits. Be the best bank in quality of service, backed by the strength of its IT platform. Intensify relations with customers with the opening of 100 to 120 branches a year between 2011 and 2013. Strengthen businesses in the key segments such as SMEs, acquiring business (point-of-sale terminals in shops), cards (association agreements were signed with Shell and other companies, and the offer to non-customers was stepped up), real estate and consumer loans, particularly auto finance. Attributable profit Net operating income Continue to construct and strengthen the Santander brand. Million euros Million euros Maintain strong growth combined with prudent risk-7.2% (*)2011/2010 +10.6% (*) 2011/2010management. 9,963 2,814 Medium- and long-term objectives9,0072,610 Santander Brazil aims to become the best universal bank in the country, the most efficient in generating shareholder value and the best in customer and employee satisfaction. In 2012-2013 Santander expects: 15% growth in profits. 20102011 20102011 15%-17% rise in lending.(*) Excluding exchange-rate impact:-7.3% (*)Excluding exchange-rate impact: +10.5% ANNUAL REVIEW 2011 37 40. Santander Select branch in MexicoSantander branch in ChileMexico ChileSantander Mexicos attributable profit increased 45.6% inSantander Chile posted an attributable profit of EUR 611local currency to EUR 936 million and contributed 10% of million, 9.3% less in pesos and 7% of the Groups total.total profits. With 499 branches and 3.5 million customers, Santander isSantander is the third largest bank in the country with more Chiles main bank in terms of assets and profits. It has a marketthan 9 million customers, 1,125 branches and a market shareshare of 19.7% in loans and 17.3% in savings.of 15.2% in banking business. Gross income rose 1.9% in local currency, with fee income upGross income rose 4.5% (+7.5% in net interest income), in line 2.4%. Operating expenses were 10.1% higher and loan-losswith the recovery in commercial business. Operating expenses provisions 17.3%.rose 11.6% due to the increase in installed capacity, whileprovisions declined 25.7% in line with the improvement in theLending increased 7% and bank savings 11% (+29% in timeBanks risk premiu